Senators Shift Gear to Pursue New Auto-Aid Strategy

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A new proposal by state senators builds on an earlier one by the White House but also provides Democrats some political cover from environmentalists' complaints.

Auto state senators are pursuing a new compromise that would allow ailing companies easier access to an Energy Department $25 billion loan fund but require that any money borrowed be repaid to that same account to preserve its initial purpose of supporting a future generation of more fuel-efficient vehicles.

The proposal builds on an earlier one by the White House while giving Democrats some political cover in the face of what are sure to be complaints from environmentalists.

Republican senators from Missouri, Ohio and Kentucky—all with large auto interests —are active in the talks and hope to have the support of Michigan Democrats to build a bipartisan coalition.

Aides cautioned that the language was still unresolved Tuesday night, but it appears to be the strongest chance the industry has of winning assistance from the Senate, which turns to the auto issue Wednesday.

In the House, Speaker Nancy Pelosi (D-Calif.) has strongly opposed any diversion of the so-called Section 136 energy loan money, which was authorized last year and only fully funded under an appropriations bill this fall. The loans are intended to finance long-range commitments by the industry to retool plants for the production of advanced-technology vehicles and were approved as part of a larger commitment to improved energy efficiency.

“Sounds like a gimmick,” said a leadership aide of the proposed compromise, and the speaker has argued the industry’s immediate cash problems should be addressed through the Treasury’s financial rescue plan.

Toward this end, Pelosi is backing a House bill that would make up to $25 billion available to the industry after Dec. 1 from the Treasury funds for what are expected to be seven-year loans.

A similar measure was introduced this week in the Senate by Majority Leader Harry Reid, but the Nevada Democrat faces difficult choices now as he tries to navigate between auto industry allies and Pelosi’s position on the energy funds.

A key player is Senate Armed Services Committee Chairman Carl Levin (D-Mich.). If he joins with Republicans like Missouri Sen. Christopher Bond in support of the compromise, it would give it considerable heft, and presumably bring along his brother, Rep. Sander Levin (D-Mich.), an important player in the House.

Senate Minority Leader Mitch McConnell, with large auto interests in his home state of Kentucky, is supportive, and Commerce Secretary Carlos Gutierrez has been the point man for the administration.

All this could puts Reid in a pickle, since approving the compromise could aggravate relations with Pelosi but walking away from a potential deal would be embarrassing from Democrats after demanding assistance for the industry

More than Ford, General Motors faces potentially serious cash problems before the end of this year, and CEO Rick Wagoner told the Senate Banking Committee that “Our industry ... needs a bridge to span the financial chasm that has opened up before us.”

And much as he opposes taking money from the financial markets rescue fund, Treasury Secretary Hank Paulson told the House Financial Services Committee Wednesday that he favored some federal aid to avert a major bankruptcy, given the problems already facing the economy.

If agreement can be reached on a compromise amendment, McConnell can use his position as Republican leader to force consideration by the full Senate. But if the agreement is that both alternatives are subject to a 60 vote super-majority, this could still open the door to mischief.

One option then for Reid would be to allow both to fail, saving Pelosi from having to deal with the proposal and putting the pressure back onto Paulson and the White House, if GM should in fact run into real cash problems this year.